The Biggest Reason Most Rollover Repayment Plans Fail
If you've used rapid debt reduction calculators on other websites, otherwise referred to as "Debt Snowball Calculator," "Rapid Debt Repayment Calculator," or "Get Out of Debt Calculator," you may not have been alerted to the single biggest reason why most people fail to execute their rapid debt payoff plan successfully. What is that reason? It's the total disregard of critical budget item called, "Depreciation Expense."
Everything you own that can wear out (depreciable assets), will wear out.
For example, if you own a home, nearly everything except the main structure will need to be replaced within the next 15 years (furniture, appliances, fixtures, roof covering, paint, flooring, furnace, AC, and so on).
The question is, are you setting aside the necessary funds to replace all of your depreciable belongings as they wear out? If not, and if you have no savings earmarked for "asset replacement," then I'm sorry to be the one to tell you this, but you are living beyond your means!
Living Beyond Your Means = More Debt!
If you're not funding an "asset replacement" savings account, and you're not willing to live without the depreciable assets as they wear out, then taking the time to create a rapid debt reduction plan will be a complete waste of your time.
Why?
Because if you're not faithfully setting aside funds to replace your depreciable assets as they wear out, then guess what's going to happen to your debt snowball (reduction) plan? That's right, as everything wears out and needs replacing you'll end up using credit to replace your assets, thereby increasing your debt -- not reducing it!
Downsizing is Easier and Faster
If you can't afford to set aside money to replace your belongings as they wear out, then you cannot afford your present lifestyle. And if that's the case, then the only way you're going to be able to execute a rapid debt reduction plan successfully is to either increase your income, or downsize your lifestyle, or a combination of both. But since you don't need a four-year degree to downsize your lifestyle, and you don't pay income taxes on downsizing, it's usually much easier and faster to become debt free by downsizing your lifestyle versus increasing your income.
Why You Should Consider Paying Off Lowest Balances First.
One question users of this calculator often ask me is why I suggest paying off your debts from smallest balance to largest balance instead of from highest interest rate to lowest interest rate.
Yes, choosing to pay off higher interest debt first will save you more money in the long run -- that is, if you manage to stick with your plan.
The reason I suggest starting with the lowest balance debts is that you will achieve your first successful "payoff" earlier in the plan. And the earlier you start achieving some success, the more likely you will stick with the plan.
Conversely, if your first debt won't be paid off for 2-3 years, there's a good chance you will become disappointed and abandon your plan. The defense rests.